UK Inheritance Tax 2026: Rates, Thresholds, Gifts, and the 9 January 2026 HMRC Interest Rate

How the 40% rate works

The standard Inheritance Tax rate is 40% (gov.uk). It applies only to the portion of an estate above the £325,000 nil-rate band (gov.uk).

An estate below the £325,000 threshold normally pays no Inheritance Tax (gov.uk). The same outcome applies when everything above the threshold passes to a spouse, civil partner, registered charity, or community amateur sports club (gov.uk).

Beneficiaries do not normally pay tax on what they inherit (gov.uk).

The £325,000 nil-rate band

The nil-rate band is the slice of an estate that sits below the Inheritance Tax threshold (gov.uk). There is normally no Inheritance Tax to pay if the value of the estate is below £325,000 (gov.uk).

The same wording on gov.uk covers a second route to zero IHT: assets passed above the £325,000 threshold to a spouse, civil partner, charity, or community amateur sports club incur no Inheritance Tax either (gov.uk).

The £500,000 combined threshold for homeowners

When the home is left to direct descendants, the tax-free threshold can rise to £500,000 (gov.uk). Two conditions apply per gov.uk: the property must pass to children (including adopted, foster, or stepchildren) or grandchildren, and the estate must be worth less than £2 million (gov.uk).

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Gifts that fall outside the estate

The annual exemption lets a giver pass £3,000 of gifts each tax year without them being added to the value of the estate (gov.uk).

A separate small-gifts allowance permits as many gifts of up to £250 per person as the giver chooses each tax year, provided no other allowance has been used on the same person (gov.uk).

Birthday and Christmas gifts made from regular income are exempt from Inheritance Tax (gov.uk).

The 7-year rule and gifts within 3 years

Taper relief on lifetime gifts only applies if the total value of gifts made in the 7 years before death is over the £325,000 tax-free threshold (gov.uk).

Gifts given in the 3 years before death are taxed at 40% (gov.uk). The row-by-row taper-relief schedule for gifts made within the 7-year window sits in a table on the same gov.uk page (gov.uk).

The 36% reduced rate for charitable estates

An estate can pay Inheritance Tax at a reduced rate of 36% on some assets if 10% or more of the net value is left to charity in the will (gov.uk). The 10% test applies to the net value of the estate, not the gross (gov.uk).

HMRC interest from 9 January 2026

From 9 January 2026, the Inheritance Tax interest rate is 7.75% (gov.uk HMRC rates table). The rate applies to any unpaid Inheritance Tax balance (gov.uk HMRC rates table).

Other reliefs that reduce the bill

Other reliefs, such as Business Relief or Agricultural Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill (gov.uk).

A note on scope

This page covers the published HMRC and gov.uk mechanics: the 40% standard rate (gov.uk), the £325,000 nil-rate band (gov.uk), the £500,000 homeowner threshold (gov.uk), the 36% reduced charitable rate (gov.uk), the gift allowances (gov.uk), the 7-year rule (gov.uk), and the 7.75% HMRC interest rate from 9 January 2026 (gov.uk HMRC rates table).

Eligibility for the reliefs above — including Business Relief and Agricultural Relief (gov.uk) — sits with a solicitor or chartered tax adviser rather than this page.

Frequently asked questions

What is the UK Inheritance Tax rate?

The standard Inheritance Tax rate is 40% (gov.uk). It applies to the portion of the estate above the £325,000 nil-rate band (gov.uk). A reduced 36% rate applies when 10% or more of the net estate is left to charity in the will (gov.uk).

When does the £500,000 threshold apply?

The tax-free threshold rises to £500,000 when the home is left to children or grandchildren and the estate is worth less than £2 million (gov.uk).

How much can be gifted each year without paying IHT?

The annual exemption is £3,000 of gifts per tax year (gov.uk). A separate small-gifts allowance lets the giver pass up to £250 per person each tax year, provided no other allowance has been used on the same person (gov.uk).

Does the 7-year rule always remove IHT on gifts?

Taper relief on lifetime gifts only applies if the total value of gifts made in the 7 years before death is over the £325,000 tax-free threshold (gov.uk). Gifts given in the 3 years before death are taxed at 40% (gov.uk).

What interest does HMRC charge on late IHT?

The Inheritance Tax interest rate is 7.75% from 9 January 2026 (gov.uk HMRC rates table).

Who actually pays the Inheritance Tax?

Beneficiaries do not normally pay tax on what they inherit (gov.uk).

Are there reliefs beyond the nil-rate band and charity rate?

Other reliefs such as Business Relief and Agricultural Relief allow some assets to be passed on free of Inheritance Tax or with a reduced bill (gov.uk).